Recession fears are intensifying after financial markets worldwide plunged in the wake of the US midterm election results and rising interest rates. Stock markets in the US and Asia suffered particularly heavy losses.
The Nasdaq closed 5.5 percent down on Thursday (November 5), losing an estimated £1.9 trillion of value. Other US stock markets also saw big falls, with the S&P 500 down 4.36 percent and the Dow Jones losing 3.44 percent on the same day.
Asian markets hit hard
Japan's Nikkei 225 fell by 5.92 percent during trading on Friday afternoon local time. In South Korea, the Kospi dropped 5.44 percent in the same trading window, while Taiwan's Taiex fell by more than 8 percent.
London's FTSE 100 fell by 0.43 percent on Thursday.
Trump blames Democrats
Donald Trump has blamed the losses on the Democrats' midterm election win. He posted to Truth Social: "The stock market suffered one of the worst days in history based on the results of the election. Such a sad thing to watch!
"It took so much work to get us to a level that no one has ever seen before, and then this. Your 401(k)s have, therefore, dropped. Remember, it wasn't Republicans, it was Dumocrats [sic]."
Tech stocks and AI concerns
It is not just Trump who believes Tuesday's election results have influenced the market. Experts say the markets bearing the heaviest losses are those packed with tech stocks, a sign that investors are cooling on AI firms after the Democrats' 'blue Tsunami'.
The Democrats regained control of Congress in the US midterm elections, along with several high-profile state governor positions, including the new boss of Texas, Gina Hinojosa. She has pledged a moratorium on building new data centres in the state, but Hinojosa is far from the only member of her party to rally against AI, leading to fears among investors that Democrats in power could at the very least slow the technology's progress.
Building data centres is seen as essential to keep AI firms growing — and investors seem to be wary of stocks in firms like TSMC, which produce the microchips required to run the software, according to investment strategist Susannah Streeter. She told the BBC: "Fears that the vast sums poured into AI infrastructure may not deliver the returns investors have been banking on are now colliding with the prospect of a sharp slowdown in data centre construction."
Bank of England raises rates
In the UK, the FTSE 100 reached its highest level for two weeks shortly before the Bank of England confirmed it was raising interest rates from 3.75 percent to 4 percent on Thursday. The Bank said it had to act to control inflation. It comes just days after the UK was warned it would be at "substantial" risk of recession if the AI bubble burst.
Governor Andrew Bailey said: "There is now enough inflationary pressure in the pipeline caused by the rise in energy prices that an increase in Bank Rate is warranted." He also sounded a warning that more pain for borrowers could be on the way: "Today's increase shouldn't be seen as the first in an inevitable long sequence of hikes. But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase."
On the same day, the Reserve Bank of Australia made a similar decision for similar reasons, fuelling concern another global recession could be around the corner.
